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CA Final · Financial Reporting · Classification and Measurement of Financial Assets and Financial Liabilities

Sagar Finance Ltd transferred a portfolio of receivables to a bank for cash. The transfer does not qualify for derecognition, so the company recognised a financial liability for the consideration received. Which statement is correct about the subsequent measurement of this liability under Ind AS 109?

A liability arising from a transfer that fails derecognition is an exception to the general amortised cost rule. Ind AS 109 requires it to be measured in accordance with paragraphs 3.2.15 and 3.2.17, not under the guarantee-style higher-of measurement or simple fair value through profit or loss.

  1. AIt is measured at amortised cost under the general rule, as no exception exists
  2. BIt is measured at fair value through profit or loss in all cases
  3. CIt is measured at the higher of the loss allowance and the amount initially recognised less cumulative income
  4. DIt is an exception to the general amortised cost rule and is measured in accordance with paragraphs 3.2.15 and 3.2.17Correct

Explanation

Paragraph 4.2.1(b) lists liabilities arising when a transfer does not qualify for derecognition, or when the continuing involvement approach applies, as an exception to amortised cost. Paragraphs 3.2.15 and 3.2.17 govern their measurement. The higher-of measurement applies to financial guarantees and below-market loan commitments, not to this liability.

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